am I allowed to accept a tenant who PREPAY several months in advance?

10 Replies

Hi All

I have a tenant who is self employed and she just started her business, since it is difficult to establish her income, she offers to prepay 3 month  in advance for a 1 year lease.   So she will put down 1st 3 months, last month and 1 month security in order to move in. 

Am I allowed to do that with a tenant? 

I know there are some regulations that say security deposit can be no more than 1 month, but not sure if there are other laws the regulate whether Landlord can accept prepayment of rent in FL. 

Thanks.

You are allowed to accept anyone as your tenant. As far as accepting the rent, taking security deposit, 1st months and last months rent is not uncommon. Have a "special provisions" section in the lease and write out that the tenant must pay 1st and last month's rent by the commencement date.

I would absolutely run a background check/credit report on this person. Get their written consent to do so, and run it. It's only $20 or so. This will help you verify if they will be a sustainable, paying tenant or if they have a history of financial woes. 

I'm located in South Carolina and will typically allow the tenant to prepay rent in cases where they are in job transitions or they are retired and do not have a regular salary coming in but may have substantial cash in reserves.  As @Michael Roy  mentioned I have a provision in my applications stating that if my list of pre-qualifications are not met I may choose to offer approval based on increased security deposits, prepayment, etc.

I would absolutely take it. I wish my tenants would all pay a years rent when they get 5-6,000 in a tax refund, instead of blowing it on a buy here pay here car down payment.

or a 60" TV

Thanks all,  especially love this suggestion  "I have a provision in my applications stating that if my list of pre-qualifications are not met I may choose to offer approval based on increased security deposits, prepayment, etc."  what a great idea.

Originally posted by @Mary Joe :

Thanks all,  especially love this suggestion  "I have a provision in my applications stating that if my list of pre-qualifications are not met I may choose to offer approval based on increased security deposits, prepayment, etc."  what a great idea.

 Thanks....Here is the exact wording I use "Compensating Factors can include additional requirements such as double deposit or rent paid in advance for applicants who fall short of above criteria."

Keep in mind that SC does not regulate or limit deposit amounts.  Please check with your state on their specifics.

Thats awesome! Sounds like a great tenant lol

Arizona allows this, but requires that you treat that prepayment as a liability until the income is earned. In other words, you can't count that money as yours until that month hits where you can apply that prepayment. For example, if the property got wiped out in a tornado, got foreclosed on, etc, and your tenant was forced to move out, you'd be liable to refund them any prepayments. Not sure if this differs in other states, but I'd assume it's a common rule.

Check your state laws. Here in the glorious "tenant friendly" (please, please, let's not be so harsh to use the term "anti-landlord") state of MA, my understanding is that it is ILLEGAL to collect anything more than the following in advance: 1) first month's rent, 2) last month's rent, 3) a security deposit in an amount not to exceed the first month's rent, and 4) the purchase and installation cost of a new lock and key. In addition, there are separate legal requirements for handling a security deposit, the failure to satisfy any one of which subjects the landlord to TRIPLE damages if it is raised in court.

I just did a quick check for NY, and it appears there is no statute in regard to prepaid rent:

NY Rental Laws

BUT, when it comes to landlord-tenant law, it pays not to assume anything, so I'd strongly recommend contacting an attorney for a definitive answer. As a landlord, you'll probably need one on call anyway.

50% of small businesses fail within a year, 95% fail within five. Prepayment would not make me any more comfortable signing a tenant with no steady, verifiable income stream. 

Originally posted by @Mary Joe :

I have a tenant who is self employed and she just started her business, since it is difficult to establish her income, she offers to prepay 3 month  in advance for a 1 year lease.   So she will put down 1st 3 months, last month and 1 month security in order to move in. 

@Mary Joe Just remember she JUST stated her own business and doesn't have a stable income. There is a risk that you may not get month 4 or 5 or 6 rent, etc....

What is her business? Why did she decide to start her own business? Was she employed by someone else in the same business she is starting and learned every aspect of it and now wants to go out on her own? Or, did she just decided on a whim to open some business she knows nothing about? I would find out the exact circumstances.

A safer thing to do is to have someone with a stable income co-sign with her for the first year. If everything goes well then you can just have her sign alone for year 2. You might also consider a 6 month or even month-to-month lease. That way you would only loose 2 months rent on a 6 month lease.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here